UNIT ‐ 3
Module – 4
Fund Flow Statement
Practical Problems and
Solutions
PROBLEM ‐ 1
The following are the summaries of the balance sheets of the Bharat Vijay Ltd.
as on 31‐12‐02 and 31‐12‐03.
Liabilities 2002 2003 Assets 2002 2003
Rs. Rs. Rs. Rs.
Share capital 3,00,000 4,00,000 Buildings 1,20,000 2,50,000
Debentures 2,00,000 2,50,000 Machinery 3,00,000 2,60,000
Profit & Loss A/c 40,000 60,000 Stock 90,000 80,000
Creditors 70,000 80,000 Debtors 1,40,000 2,40,000
Bank overdraft 25,000 25,000 Prepaid 15,000 25,000
Provision for 30,000 40,000 expenses
Taxation
6,65,000 8,55,000 6,65,000 8,55,000
The following additional information is obtained:
1. The net profit for the year was Rs. 40,000 after charging depreciation.
2. During the year depreciation charged was Rs. 30,000 on building and Rs.
40,000 on machinery.
3. The company purchased during the year buildings worth Rs. 1, 60,000.
4. Dividend paid during the year amounted to Rs. 20,000.
From the above information, prepare a statement of sources and
application of funds for the year 2003.
Solution ‐ 1
STATEMENT OF CHANGIES IN WORKING CAPITAL
The comparative balance sheet of Icelands Ltd. as at 31st December, 2007 and
2008 are as under:
Liabilities 2007 2008 Assets 2007 2008
Rs. Rs. Rs. Rs.
Share capital 10,00,000 15,00,000 Building at cost 7,50,000 11,50,000
Share premium ‐ 50,000 Machinery 8,75,000 11,25,000
P & L A/c 2,00,000 4,25,000 (Less depreciation)
5% debentures 5,00,000 3,80,000 Investments 1,00,000 1,00,000
Creditors 3,00,000 5,20,000 Stock 2,25,000 2,45,000
Prov. for Taxation 1,00,000 25,000 debtors 75,000 90,000
Proposed dividend 50,000 50,000 Bank balance 1,25,000 2,40,000
21,50,000 29,50,000 21,50,000 29,50,000
The additional information is as under:
1. During the year 2008 the company sold machinery costing Rs. 75,000 for
Rs. 25,000. The accumulated depreciation on the said machinery was Rs.
40,000.
2. Depreciation written off during the year 2008 was Rs. 90,000.
3. Taxation paid during the year amounted to Rs. 90,000.
From the above information prepare a statement of Sources and
Application of Funds for the year 2008.
Solution ‐ 2
STATEMENT OF CHANGIES IN WORKING CAPITAL
PARTICULAR 2007 2008 INCCREASE DECREASE
IN W.C. IN W.C.
Current Assets
Stock 2,25,000 2,45,000 20,000 ‐
Debtors 75,000 90,000 15,000 ‐
Bank balance 1,25,000 2,40,000 1,15,000 ‐
Total (A) 4,25,000 5,75,000
Current Liabilities
Creditors 3,00,000 5,20,000 ‐ 2,20,000
Total (B) 3,00,000 5,20,000
Working Capital (A ‐ B) 1,25,000 55,000
Decrease in Working Capital 70,000 ‐
2,20,000 2,20,000
LEDGER ACCOUNTS:
Building Account
Particular Amount Particular Amount
Opening Bal 7,50,000
To Purchase building 4,00,000 By Closing balance 11,50,000
11,50,000 11,50,000
Machinery Account
Particular Amount Particular Amount
To Opening bal 8,75,000 By Deprication 90,000
(40,000+50,000)
To Purchase machinery 3,75,000 By Bank‐ sale 25,000
By Profit & Loss 10,000
By Closing bal. 11,25,000
12,50,000 12,50,000
Provision for Taxation
Particular Amount Particular Amount
To Tax paid 90,000 By opening bal. 1,00,000
To bal c/f 25,000 By profit & loss 15,000
1,15,000 1,15,000
Adjusted Profit & Loss Account
Particular Amount Particular Amount
To proposed dividend 50,000 By opening bal. 2,00,000
To depreciation 90,000
To loss on sale of 10,000
machinery
To provision for taxation 15,000
To closing bal. 4,25,000 By Adjusted Profit 3,90,000
5,90,000 5,90,000
Fund Flow Statement
Sources of Funds Amount Application of Funds Amount
₹ ₹
Share capital 5,00,000 Debenture 1,20,000
Share Premium 50,000 Purchase of Machinery 3,75,000
Decrease in working 70,000 Purchase of building 4,00,000
capital
Sale of Machinery 25,000 Payment dividend 50,000
Adjusted Profit 3,90,000 Payment of taxation 90,000
10,35,000 10,35,000
PROBLEM ‐ 3
You have been given the following financial statements of Adarsh Eng. Co. Ltd. as
at 31st December, 2002 and 2003.
Liabilities 2003 2002 Assets 2003 2002
Rs. Rs. Rs. Rs.
Sundry creditors 2,98,000 2,51,450 Cash at bank 45,000 1,30,000
Prov. for taxation 1,72,000 65,000 Sundry debtors 1,40,000 90,700
Bank loan (secured) ‐ 87,000 Stock 1,96,000 1,42,500
Res. and surplus 3,12,000 1,48,000 Fixed assets (less 6,00,000 3,60,000
Share capital (Rs. 100 2,30,000 1,97,000 depreciation)
shares) Investments 10,000 11,250
Pre‐paid expenses 21,000 14,000
10,12,000 7,48,450 10,12,000 7,48,450
The following further information is available from the records:
(a) The position in respect of Reserves and Surplus is as under:
Rs.
Balance on 1st January, 2003 1, 48,000
Net Profit for the year 1, 98,500
3, 46,500
Less: dividend 34,500
3,12,000
(b) On 31‐12‐03 the accumulated depreciation on fixed assets was Rs.
1,80,000 and on 31‐12‐02 Rs. 1,60,000. Machinery costing Rs. 20,000
which was half depreciated was discarded and written off in 2002;
Depreciation for the year 2003 amounted to Rs. 30,000.
(c) Investment costing Rs. 5,000 were sold during the year 2003 for Rs.
4,800 and government securities of the face value Rs. 4,000 were
purchased during the year for Rs. 3,750.
You are required to prepare (1) Statement of sources and application of
funds and (2) Statement showing detail the item‐wise increase or decrease in net
working capital.
Solution ‐ 3
STATEMENT OF CHANGIES IN WORKING CAPITAL
PARTICULAR 2002 2003 INCCREAS DECREASE
E IN W.C. IN W.C.
Current Assets
Cash at bank 1,30,000 45,000 ‐ 85,000
Debtors 90,700 1,40,000 49,300 ‐
Stock 1,42,500 1,96,000 53500 ‐
Pre‐Paid Exp. 14,000 21,000 7000
Total (A) 3,77,200 4,02000
Current Liabilities
Taxation 65,000 1,72,000 1,07,000
Sundry creditors 2,51,450 2,98,000 46550
Total(B) 3,16,450 4,70,000
Working Capital(A‐B) 60,750 (‐68,000)
Decrease in Working Capital 1,28,750 ‐
2,38,550 2,38,550
Fixed Assets Account
Particular Amount Particular Amount
₹ ₹
To opening bal.(with dep.) 3,60,000 By Acc. depreciation 10,000
To Depreciation A/C 1,60,000 By Adj. P & L (loss) 10,000
To bank ‐ purchase 2,80,000 By Acc. depreciation 1,80,000
By Bal C/F(with dep.) 6,00,000
8,00,000 8,00,000
Accumulated Depreciation Account
Particular Amount Particular Amount
₹ ₹
To Fixed Assets A/c 10,000 By Balance B/d 1,60,000
To Balance C/d 1,80,000 By Adj. P & L A/c. 30,000
1,90,000 1,90,000
Investment Account
Particular Amount Particular Amount
₹ ₹
To opening balance 11,250 By bank (sold) 4800
To bank (purchase) 3750 By Adjusted Profit & 200
Loss A/C
By Balance C/d 10,000
15,000 15,000
Adjusted Profit & Loss Account
Particular Amount Particular Amount
₹ ₹
To loss on fixed assets 10,000 By opening bal. 1,48,000
To Depreciation 30,000
To loss on investment 200
To dividend paid 34,500 By adjusted Profit 2,38,700
To bal c/f 3,12,000
3,86,700 3,86,700
Fund Flow Statement
Sources of Funds Amount Application of Funds Amount
₹ ₹
Issue of shares 33,000 Repayment of loan to 87,000
bank
Sale of investment 4800 Dividend paid 34500
Decrease in working 1,28,750 Investment purchased 3750
capital
Adjusted Profit 2,38,700 Purchase of fixed assets 2,80,000
4,05,250 4,05,250
PROBLEM ‐ 4
The balance sheet of Mira Ltd. is as under:
Liabilities 2006 2005 Assets 2006 2005
Rs. Rs. Rs. Rs.
Share capital: Building 4,80,000 3,45,000
Eq. shares each of Rs. 10 Stock 2,34,000 2,44,000
10% pref. shares of Rs. 15,00,000 12,00,000 Land 2,00,000 4,00,000
10 each Rs. 8 called up ‐ 8,00,000 Plant 17,00,000 15,00,000
Share premium ‐ 30,000 Debtors 8,46,000 10,56,000
Capital reserve 50,000 ‐ Cash balance 2,00,000 1,55,000
Capital Red. Fund 7,00,000 ‐ Prepaid
General reserve 4,00,000 9,00,000 expenses 30,000 25,000
P & L A/c 5,00,000 4,00,000 Bills receivable 60,000 35,000
Provident fund 1,00,000 80,000 Mis. expenses 2,50,000 2,40,000
Creditors 1,50,000 2,00,000
Bills payable 6,00,000 3,90,000
40,00,000 40,00,000 40,00,000 40,00,000
Additional information:
1. During the year 2006 the company decided to value stock at cost where as
previously the Practice was to value stock at cost less 10%. The stock
on 31‐12‐06 was correctly valued.
2. During the year, the company has redeemed Red. Pref. Shares at 5%
premium after complying necessary requirements of the Act. For this
purpose the company transferred Rs. 7,00,000 to capital redemption fund
from general reserve and necessary new equity shares were issued.
3. The company declared a dividend at 25% to equity share holders.
4. Rs. 1,50,000 were provided for depreciation on plant. During the year one
plant, whose book value was Rs. 50,000 was sold at a loss of Rs. 10,000.
5. A piece of land has been sold out and profit was transferred to capital
reserve.
From the above information prepare:
(A) A statement of sources and applications of funds.
(B) A statement of changes in working capital.
Solution ‐ 4
STATEMENT OF CHANGIES IN WORKING CAPITAL
Building Account
General Reserve Account
Plant Account
Working Note:
1) Preference shares Redeemed
Paid up capital ₹ 8,00,000
Unpaid capital ₹ 2,00,000
Before redemption preference share should be fully paid up
• After this it will redeem with 5% premium (1,00,000*5%) 50,000
• Share premium ₹30,000 was given in balance sheet first take it
&remaining amount ₹20,000 will provide from profit &loss A/C.
2) Dividend to Shareholders
• Before dividend paid to shareholders first paid to preference shareholders.
• Preference dividend: 2005 ₹8,00,000 capital @10% = ₹80,000 paid in 2006.
• Equity share dividend:‐ ₹12,00,000 @ 25%= ₹3,00,000 proposed in 2005
&paid in 2006.
Adjusted Profit & Loss Account
Fund Flow Statement
From the following balance sheets of Bhairav Ltd. prepare:
(a) A statement showing changes in working capital
(b) A statement of source and application of funds.
Liabilities 31‐3‐10 31‐3‐11 Assets 31‐3‐10 31‐3‐11
Rs. Rs. Rs. Rs.
Creditors 39,520 41,135 Cash at bank 2,520 4,820
Bills payable 33,780 12,645 Debtors 85,175 72,625
Bank‐overdraft 59,510 ‐ Sundry Advances 2,315 735
Provision for taxation 40,000 50,000 Stock 1,11,040 97,370
Reserve 50,000 55,000 Land‐ building 1,48,500 1,44,250
P & L A/c 39,690 36,220 Plant 1,12,950 1,16,200
Equity shares capital 2,00,000 2,60,000 Goodwill ‐ 19,000
4,62,500 4,55,000 4,62,500 4,55,000
Additional information:
1. During the year taxes and interim dividend paid were Rs. 35,000 and Rs.
39,000 respectively.
2. The assets of another company were purchased for Rs. 60,000 payable in
fully paid equity shares of the company. The assets consisted of stock Rs.
21,640, plant Rs. 18,360 and remaining amount was for goodwill.
3. During the year the purchase price is Rs. 5,650 for a plant.
Solution ‐ 5
STATEMENT OF CHANGIES IN WORKING CAPITAL
Land‐Building Account
Machinery Account
Provision for Taxation Account
Adjusted Profit &Loss Account
Fund Flow Statement
PROBLEM ‐ 6
The balance sheets of A ltd. as on 31‐12‐2011 and 31‐12‐2012 are given below.
Prepare source and application of fund statement:
Liabilities 2011 2012 Assets 2011 2012
Rs. Rs. Rs. Rs.
Share capital 3,00,000 4,00,000 Fixed assets at cost 8,00,000 9,50,000
Capital reserve ‐ 10,000 Less: Depreciation 2,30,000 2,90,000
General reserve 1,70,000 2,00,000 5,70,000 6,60,000
P & L A/c 60,000 75,000 Investments 1,00,000 80,000
Debentures 2,00,000 1,40,000 Current assets 2,80,000 3,30,000
Current liabilities 1,20,000 1,30,000 Preliminary Exp. 20,000 10,000
Prov. for income tax 90,000 85,000
Proposed dividend 30,000 36,000
Unpaid dividend ‐ 4,000
9,70,000 10,80,000 9,70,000 10,80,000
During the year 1985 the company:
1. Sold the machines for Rs. 25,000 the cost of which was Rs. 50,000 and the
depreciation provided on it was Rs. 21,000.
2. Provided Rs. 95,000 as depreciation.
3. Redeemed 30% of debentures at Rs. 103.
4. Sold some trade investments at a profit which was credited to capital
reserve.
5. Decided to value stock at cost whereas previously the practice was to value
stock at cost less 10%. The stock according to books on 31‐12‐11 was Rs.
54,000. The stock on 31‐12‐12 was correctly valued at cost Rs. 75,000.
6. Write off fixed assets costing Rs. 14,000 which is fully depreciated.
Solution ‐ 6
STATEMENT OF CHANGIES IN WORKING CAPITAL
PARTICULAR 2011 2012 INCCREASE DECREASE
IN W.C. IN W.C.
Current Assets
Current Assets 2,86,000 3,30,000 44,000 ‐
Total(A) 2,86,000 3,30,000
Current Liabilities
Current liabilities 1,20,000 1,30,000 10,000
Provision for taxation 90,000 85,000 5000
Total(B) 2,10,000 2,15,000 ‐
Working Capital(A‐B) 76,000 1,15,000
Increase in Working Capital 39,400
49,000 49,000
Fixed Assets Account
Particular Amount Particular Amount
₹ ₹
To Balance b/d. 8,00,000 By Bank (sales) 25,000
By Adj. P & L A/c. 4,000
By Prov. for depreciation 35,000
To Bank (purchase) 2,14,000 By Balance. c/f 9,50,000
10,14,000 10,14,000
Provision for Depreciation Account
Particular Amount Particular Amount
To Fixed assets 35,000 By Balance b/d 2,30,000
To Balance c/f. 2,90,000 By Adj. P & L A/c. 95,000
3,25,000 3,25,000
Adjusted Profit &Loss Account
Particular Amount Particular Amount
₹ ₹
To Fixed assets 4,000 By Balance b/d.
60,000
To Prov. for depreciation 95,000 By Stock 6,000
To Deb. red. Premium 1800 By Adjusted profit 1,85,800
To Prel. Exp. Written off 10,000
To Proposed dividend 36,000
To General reserve 30,000
To Balance c/f 75,000
2,51,800 2,51,800
Fund Flow Statement
Sources of Funds Amount Application of Funds Amount
₹ ₹
Equity share capital 1,00,000 Purchase of fixed assets 2,14,000
Sale of machinery 25,000 Redeemable Debenture 61,800
Sale of trade investment 30,000 Dividend paid 26000
Adjusted Profit 1,85,000 Increase in working capital 39,000
3,40800 3,40800
Working note:1
• Redeemable amount of debenture: 60,000 Face Value of Debenture
• No. of Debenture: 60,000/100 = 600 Debenture
• Redeemable amount = 600* 103 =61800
• Redeemable Premium = 61800 – 60,000 = 1800
PROBLEM ‐ 7
The directors of a company present you with the balance sheet as at 31st
march 2002 and 2003 and ask you to prepare statement which will show them
what has happened to the money which has come into the business during the
year.
Particulars 31‐3‐02 31‐3‐03
Rs. Rs.
Authorised Capital:
15,000 shares of Rs. 100 each 15,00,000 15, 00,000
Paid‐up share capital 13,00,000 14,00,000
General reserve 60,000 40,000
Profit & loss Appropriation A/c 36,000 38,000
Sundry creditors 76,000 1,12,000
Bank overdraft 69,260 1,29,780
Bills payable 40,000 38,000
Proposed final dividend 78,000 72,000
Loan on mortgage ‐ 5,60,000
16,59,260 23,89,780
Freehold building 8,00,000 11,76,000
Machinery and Plant 1,44,000 3,94,000
Furniture 6,000 5,500
Cash 1,560 1,280
Sundry debtors 1,25,600 1,04,400
Bills receivable 7,600 6,400
Stock 2,44,000 2,38,000
Pre‐paid expenses 4,500 6,200
Goodwill 2,40,000 2,20,000
Shares in other companies 80,000 2,34,000
Preliminary expenses 6,000 4,000
16,59,260 23,89,780
You are given the following additional information:
1. Depreciation has been charged:
On freehold buildings @ 2½% p.a. (cost Rs. 10, 00,000)
On machinery and plant @ 8% p.a. (cost Rs. 4, 00, 000)
On furniture @ 5% p.a. (cost Rs. 10,000)
No depreciation has been written off on newly acquired buildings and plant
and machinery.
2. Shares in other companies were purchased for Rs. 1,60,000 cash and
dividends amounting to Rs. 6,000 declared out of profit made prior to
purchase have been received and used to write down the investment
(shares).
3. Goodwill has been written off against general reserve.
4. The purposed dividend for the year ended 31st march, 2003 was duly paid
and in addition, an interim dividend of Rs. 52,000 was paid.
Solution ‐ 7
STATEMENT OF CHANGIES IN WORKING CAPITAL
PARTICULAR 2002 2003 INCCREASE DECREASE
IN W.C. IN W.C.
Current Assets
Cash balance 1560 1280 280
Debtors 1,25,600 1,04,400 ‐ 21,200
Bills receivable 7600 6400 1200
Stock 2,44,000 2,38,000 6000
Pr‐paid Exp. 4500 6200 1700
Total(A) 3,83260 3,56,280 ‐
Current Liabilities
Sundry Creditors 76,000 1,12,000 36,000
Bills Payable 40,000 38,000 2000
Bank O.D. 69,260 1,29,780 60,250
Total(B) 1,85,260 2,79,780
Working Capital(A‐B) 1,98,000 76,500
Decrease in working capital 1,21,500
1,25,200 1,25,200
Free‐ Hold Building Account
Particular Amount Particular Amount
₹ ₹
To Balance b/d. 8,00,000 By Dep.(P &L Adj) 25,000
To Bank (purchase) 4,01000 By Balance c/f 11,76,000
12,01,000 12,01,000
Machinery Account
Particular Amount Particular Amount
₹ ₹
To Balance b/d. 1,44,000 By Dep.(P &L Adj) 32,000
To Bank (purchase) 2,82,000 By Balance c/f 3,94,000
4,26,000 4,26,000
Furniture Account
Particular Amount Particular Amount
₹ ₹
To Balance b/d. 6000 By Dep.(P &L Adj) 500
By Balance c/f 5500
6000 6000
Adjusted Profit &Loss Account
Particular Amount Particular Amount
₹ ₹
To Interim dividend 52,000 By Balance b/d 36,000
To Proposed dividend 72,000
To Depreciation
Building 25000
Machinery 32000
Furniture 500 57,500 By Adjusted profit 1,85,500
To Prel. Exp. written off 2,000
To Balance c/f 38,000
2,21,500 2,21,500
Fund Flow Statement
Sources of Funds Amount Application of Funds Amount
₹ ₹
Equity share capital 1,00,000 Purchase of free hold 4,01,000
building
Mortgage loan 5,60,000 Purchase of Machinery 2,82,000
Dividend received 6,000 Dividend paid 1,30,000
Decrease in working 1,21,500 Purchase of shares 1,60,000
capital
Adjusted profit 1,85,500
9,73,000 9,73,000
PROBLEM ‐ 8
Following are the Balance Sheets of X Ltd. as on 31 st December, 2006 and
2007 and Income statement for the period ending 31st December, 2007.
Prepare a fund flow Statement. During the year 2007 equipment whose book
value was Rs. 15000 was sold for Rs. 6000 and it had an accumulated
depreciation of Rs. 8000.
Balance Sheets
Income Statement (for the year ended 31‐12‐2007)
Particulars Amount (Rs.)
Net Sales 19,70,000
Less: Cost of goods sold 14,80,000
Gross Profit 4,90,000
Less: Operating Expenses (includes depreciation on buildings and
equipment of Rs. 23000 and patent amortization of Rs. 6000)
Net Loss form operation 5,00,000
Less: other revenue (10,000)
7,000
Net Loss: (3,000)
Add: Retained earnings 2,31,000
Less: Dividend Paid 16,000 2,28,000
Loss on sale of asset 1,000 17,000
Retained earnings (31‐12‐2007) 2,11,000
Solution ‐ 8
STATEMENT OF CHANGIES IN WORKING CAPITAL
PARTICULAR 2006 2007 INCCREASE DECREASE
IN W.C. IN W.C.
Current Assets
Cash balance 74,000 37,000 37,000
Inventories 3,12,000 2,77,000 ‐ 35,000
Bills receivable 54,000 47,000 7000
Pr‐paid Exp. 6,000 4000 2000
Total(A) 4,46,000 3,65,000 ‐
Current Liabilities
Accounts payable 58,000 94,000 36,000
Bills Payable 28000 8000 20000
Prov. for social service tax 3000 5000 2000
Prov. for income tax 86000 12000 74000
Total(B) 1,75,000 1,19,000
Working capital(A‐B) 2,71,000 2,46,000
Decrease in working capital 25,000
1,19,000 1,19,000
Building & Equipments Account
Particular Amount Particular Amount
₹ ₹
To Balance b/d. 4,20,000 By Dep. On furniture 8000
To Bank (purchase) 75000 By Loss due to sale 1000
By Bank (sale) 6000
By Balance c/f 4,80,000
4,95,000 4,95,000
Depreciation Fund Account
Particular Amount Particular Amount
₹ ₹
To Building & Equipments 8000 By Balance b/d 105000
By Adj. P & L A/c. ‐ Dep. 23,000
To Balance c/f 120000
128000 128000
Patents Account
Particular Amount Particular Amount
₹ ₹
By Balance b/d 55,000 By Amortization 6000
To Bank(purchase) 16,000 By Balance c/f 65,000
71,000 71,000
Adjusted Profit &Loss Account
Particular Amount Particular Amount
₹ ₹
To Dividend paid 16,000 By Balance b/d 2,31,000
To Loss due to sale of 1000
building
To Amortization 6000
To Depreciation 23,000 By Adjusted Profit 26,000
To Balance c/f 2,11,000
2,57,000 2,57,000
Fund Flow Statement
Sources of Funds Amount Application of Funds Amount
₹ ₹
Equity share capital 2,10,000 Purchase of building 75000
Sale of Equipment 6000 Purchase of Patents 16,000
Adjusted profit 26000 Dividend paid 16000
Decrease in working 25000 Payments of Debenture 160000
capital
2,67,000 2,67,000
PROBLEM ‐ 9
From the Balance Sheets of Manan Ltd. as on 31‐12‐2005 and 31‐12‐2006
and other additional information given to you. Prepare:
1. On 1‐1‐ 2006, company has given bonus shares from General Reserve. One
bonus share is given against two equity shares.
2. Taxation paid during the year was Rs. 14,000 and interim dividend of Rs.
8,000 was also paid.
3. Depreciation charged on building is Rs. 6,000 and on machinery is Rs.
4,000.
4. A machine having cost value of Rs. 10,000 was sold with profit. This profit
was credited to capital reserve A/c.
5. During the year debentures were issued at 5% discount.
6. Investments of Rs. 5,000 cost value were sold at 20% profit.
7. Closing stock of 31‐12‐2005 was shown at price, which is 20% less than cost
price. Closing stock of 31‐12‐2006 is shown at cost price. You have to
consider original cost price of stock of 31‐12‐2005.
Goodwill was written off against capital reserve.
Solution ‐ 9
STATEMENT OF CHANGIES IN WORKING CAPITAL
PARTICULAR 2005 2006 INCCREASE DECREASE
IN W.C. IN W.C.
Current Assets
Stock (16000+4000) 20,000 25,000 5000 ‐
Debtors 49000 21000 28000
Cash & Bank 12000 13000 1000 ‐
Total(A) 81000 59000
Current Liabilities
Creditors 25000 31000 6000
Bills Payable 20000 20000 ‐
Total(B) 45,000 51,000
Working Capital(A‐B) 36000 8000
Decrease in Working Capital 28,000 ‐
34,000 34,000
Building Account
Particular Amount Particular Amount
₹ ₹
To Balance b/d. 60,000 By Depreciation 6000
To Bank (purchase) 46000 By Balance c/f 1,00,000
1,06,000 1,06,000
Machinery Account
Particular Amount Particular Amount
₹ ₹
To Balance b/d. 40,000 By Depreciation 4000
To Bank (purchase) 69000 By Bank(sales) 12,000
To Capital reserve 2000 By Balance c/f 95,000
(profit)
1,11,000 1,11,000
Investment Account
Particular Amount Particular Amount
₹ ₹
To Balance b/d. 15000
To Bank (purchase) 2000 By Bank (sales) 6000
(5000+1000)
To Profit & loss (Profit) 1000 By Balance c/f 12000
18,000 18,000
Provision for Taxes Account
Particular Amount Particular Amount
₹ ₹
To Cash paid 14000 By Balance b/d 15000
To Balance c/f 17000 By Adj. P & L A/c. ‐ prov. 16000
31,000 31,000
General Reserve Account
Particular Amount Particular Amount
₹ ₹
To Equity share(bonus) 50,000 By Balance b/d 60,000
To Balance c/f 20,000 By Adj. P & L A/c. 10,000
70,000 70,000
Adjusted Profit &Loss Account
Particular Amount Particular Amount
₹ ₹
To Depreciation By Balance b/d 10,000
Building 6000 By Stock 4000
Machinery 4000 By Investment(profit) 1000
10,000
To Provision for tax 16000
To Prov. for general reserve 10,000
To Pre. Exp. Written off 2000 By Adjusted Profit 45,500
To Interim dividend 8000
To Deb. Discount written off 2500
To Balance c/d 12,000
60,500 60,500
Fund Flow Statement
Sources of Funds Amount Application of Funds Amount
Issue Debenture 47,500 Purchase of building 46000
Sale of Machinery 12000 Purchase of Machinery 69000
Investment sold 6000 Purchase of investment 2000
Dec. in working capital 28000 Income tax paid 14,000
Adjusted Profit 45,500 Interim dividend 8000
1,39,000 1,39,000
PROBLEM ‐ 10
Following are the Balance Sheets of Shah Ltd. as on 31‐3‐06 and 31‐3‐07.
Additional Information:
1. Company capitalized some amount from General Reserve and issued the
bonus shares to the existing shareholders as 2:1 at the end of the year 31‐
3‐07.
2. Company issued Right Equity Shares in the Ratio of 5:1 after issuing bonus
shares on increased capital.
3. Income tax paid Rs. 37,000 for the year ending 31‐3‐2006 and also paid
proposed dividend for the year 2005‐06
4. Investment is sold Rs. 7000 with profit and profit is transferred to capital
reserve account.
5. Real valued of machinery is Rs. 20000 and accumulated depreciation is Rs.
7500 on machinery, which is sold at Rs. 15,000.
6. 1/3 Debentures out of total debentures are redeemed at Rs. 104.
7. Expenses for issuing Right shares is to be written off in nine equal
instalments from 2006‐07.
Solution ‐ 10
STATEMENT OF CHANGIES IN WORKING CAPITAL
PARTICULAR 2005‐06 2006‐07 INCCREASE DECREASE
IN W.C. IN W.C.
Current Assets
Stock 45000 60000 15000 ‐
Bills Receivable 46000 38000 8000
Debtors 37000 42000 5000
Cash & Bank 12000 29000 17000 ‐
Total(A) 1,40,000 1,69,000
Current Liabilities
Creditors 40000 46000 6000
O/S. Expenses 8000 11000 3000
Bills Payable 14500 34200 19700
Total(B) 62500 91200
Working Capital(A‐B) 77500 77800
Increase in Working Capital 300
37000 37000
Working Note:1
1) Bonus Shares: 2 Equity share = 1 Bonus share
3000 Equity share = ?
Ans. = 15,000 shares
Bonus Capital: 15000*10 = 1,50,000 Rs.
So, total equity share = 30,000 + 15,000 = 45,000 shares
2) Right shares: 5 Equity share = 1 Bonus share
3000 Equity share = ?
Ans. = 9,000 Right shares issued
Right share capital =9000*10 = 90000 Rs.
Equity Share Capital Account
Particular Amount Particular Amount
₹ ₹
By Balance b/d 3,00,000
To Balance c/f 5,40,000 By Bank A/c 90,000
To Equity share (bonus) 1,50,000
5,40,000 5,40,000
General Reserve Account
Particular Amount Particular Amount
₹ ₹
To shareholder bonus 1,50,000 By Balance b/d 3,80,000
To Balance c/f 2,40,000 By Adj. P & L A/c. 10,000
3,90,000 3,90,000
Provision for taxation Account
Particular Amount Particular Amount
₹ ₹
To Bank A/c (Paid) 37,000 By Balance b/d 40,000
To Balance c/f 65,000 By Adj. P & L A/c. ‐ prov. 62,000
1,02000 1,02,000
Investment Account
Particular Amount Particular Amount
₹ ₹
To Balance b/d 1,55,000 By Bank (sales) 10,000
To Capital 3,000
Reserve(profit)
To Bank (purchase) 12,000 By Balance c/f 1,60,000
1,70,000 1,70,000
Fixed Assets Account
Particular Amount Particular Amount
₹ ₹
To Balance b/d 8,15,000 By Depreciation Fund 7,500
To Profit &loss(profit) 2,500 By Bank 15,000
To Bank (purchase) 1,07,000 By Balance c/f 9,02,000
9,24,500 9,24,500
Depreciation Fund Account
Particular Amount Particular Amount
₹ ₹
To Fixed assets 7,500 By Balance b/d 90,500
To Balance c/f 1,19,000 By Profit &loss(profit) 36,000
1,26,500 1,26,500
Working Note:
1) Debenture: 1,50,000 * 1/3 = 50,000
• No. of Debentures = 50,000/ 100 Rs. = 500 Debentures.
• Redeemable Amount: 500 * 104 Rs. = 52,000 Rs.
• Premium = 52000 – 50000 = 2000 Rs.
Adjusted Profit &Loss Account
Particular Amount Particular Amount
₹ ₹
To General Reserve 10,000 By Balance b/d 30,000
To Provision of tax 62,000 By Profit due to sale of 2,500
machinery
To Depreciation fund
36,000
To Debenture Red. 2,000 By Adjusted Profit 1,97,300
Premium
To Goodwill written off 10,000
To Proposed Dividend 64,800
To Balance c/d 45,000
2,29,800 2,29,800
Fund Flow Statement
Sources of Funds Amount Application of Funds Amount
₹ ₹
Equity Share (right 90,000 Preference Share 50,000
share) written off
Sale of Machinery 15,000 Tax Paid 37,000
Investment sold 10,000 Purchase of investment 12,000
Machinery Purchase 1,07,000
Adjusted Profit 1,97,300 Proposed Dividend 45,000
Debenture written off 52,000
Increase in Working 300
capital
Preliminary Exp. 9,000
3,12,300 3,12,300